CRA Climate Analysis: “Extreme Again”

The national Chamber of Commerce and the American Council for Capital Formation are holding events in select states using biased, polluter-funded “analysis” of climate legislation to discourage Congress from moving aggressively to tackle the threat of global warming. They specifically take aim at one of the proposals being considered in Congress: the bipartisan Lieberman-Warner Climate Security Act (S. 2191).

The analysis, conducted by Charles River Associates (CRA), was first funded by the oil industry (American Petroleum Institute), which would be regulated by the bill. Further research by CRA on the bill has been funded by electric power companies (Edison Electric Institute), which would also be regulated under the bill. The model CRA uses is a secretive “black box” and (surprise!) produces extreme, lopsided results that are at odds with the results found by all credible academic institutions. Other analysis consistently finds that America’s economy will grow strongly under the Lieberman-Warner bill or any of the cap-and-trade proposals under consideration in Congress.

Below is an excellent review done by Environmental Defense Fund on CRA’s analysis. News accounts including the Miami Herald have also detailed how CRA’s biased modeling recently came under attack from an unlikely source – some of the utilities that are members of Edison Electric Institute. CRA is now working on revising its analysis.

Importantly, in addition to providing inflated estimates of economic costs, CRA’s analysis ignores the Lieberman-Warner bill’s innovative consumer rebates and incentives. The Climate Security Act provides rebates and energy efficiency assistance to low-income and middle-income consumers. The exact amount of funding will depend on how much energy prices are actually affected, but some analysis indicates that the bill could return $500 to a family of four annually to help offset any increased energy costs through rebates and energy efficiency incentives.

According to an analysis by Massachusetts Institute of Technology (MIT), America’s economy will more than triple by 2050 under the Lieberman-Warner Climate Security Act. Also according to MIT’s analysis, by 2015 the United States will be spending $20 billion less on foreign oil every year as a result of enacting the Climate Security Act. That translates to spending about $1,400 less on foreign oil payments for every person in the nation over the next 20 years. In other words, we can drastically cut emissions while our economy grows by 214%, creates the technologies and jobs of the future, and reduces its dependence on foreign oil. As we strengthen this bill in Congress, the benefits to the economy in bolstering clean energy jobs and curbing oil dependency will also increase.

America’s Climate Security Act of 2007 [S. 2191) is a bipartisan bill that would create a cap and trade program to cut greenhouse gas emissions in the U.S. The Edison Electric Institute, a trade organization representing electric utilities, recently paid consulting firm Charles River Associates International (CRA) to assess the possible economic impacts of the legislation. An assessment of CRA’s analysis using accepted academic modeling reaches the following conclusions:

CRA has a history of presenting extreme views for its industry clients. For example, CRA’s analysis in 2003 of the McCain-Lieberman Climate Stewardship Act projected household costs that were three to four times higher than the upper range of results in an MIT study, and 10 to 14 times higher than MIT’s lower range.

CRA’s results are dramatically different than economic assessments by researchers in academia and government. For example, CRA’s estimates for the impact of the bill in 2015 on greenhouse gas emission allowance prices, economic output (GDP), and electricity prices are 75%-300% higher than those found by a study performed by researchers at Duke University and Research Triangle Institute.

Determining exactly why CRA’s numbers are so high is difficult, both because of how CRA reports their results and because the CRA model remains a “black box” to outsiders. Although CRA released some information in a response to a request from Senator Lieberman, they have never fully opened up their model to outside peer review, so key assumptions remain hidden. Moreover, CRA lumps together results from various scenarios without specifying which scenarios lead to which results. One reason for the divergence from other models, however, appears to be that CRA ignores the role of international credits, which under the Lieberman Warner bill could meet up to 15% of compliance obligations. In addition, their analysis assumes high costs for new coal-fired power plants with carbon capture and sequestration technology, and imposes artificial constraints on how widely that technology is used.

Like most economic forecasting models, CRA’s analysis considers only one side of the ledger: it considers the costs of reducing emissions, but fails to examine the costs of inaction.

No single model should be relied upon for policy making. Instead, policy makers should look to the full range of economic models for guidance on the possible impacts of climate policy. And when confronted with a range of numbers, a common rule of thumb is to throw out the lowest and highest numbers, and concentrate on the middle of the range.

Former Federal Reserve Chairman Paul Volcker summarized the economic situation best: “If you don’t take action on climate change, you can be sure that our economies will go down the drain in the next 30 years. What may happen to the dollar, and what may happen to growth in China or whatever, will pale into insignificance compared with the question of what happens to this planet over the next 30 or 40 years if no action is taken.”

Our analysis is based on testimony by CRA, documentation supporting that testimony, CRA’s recent update to their analysis, and economic models by researchers at MIT, Research Triangle Institute, and the Department of Energy.